The Great Reorganization – Part 7

Over the past week I’ve submitted to you my running macroeconomic thesis: America’s Great Reorganization…

They say that there are only two guarantees in life – death and taxes. I don’t care much for that statement though. So I’d like to propose a modification.

I think there’s only one guarantee in life… Change. That’s it.

Everything changes over time. We know this to be true by experience.

One day we look in the mirror and see a young, vibrant face. But we don’t think too much about it. We have too many places to go and people to see. Our energy is boundless. We just assume it will always be this way.

Then some years go by and we don’t see that same face in the mirror anymore. Somehow it’s not quite so vibrant. And now it has some lines on it. We might sit and ponder this for a little while… because we don’t have other plans. We lack the energy to do all the things we once did.

Well, it’s the same with the economy and thus our society. Change is guaranteed.

As it stands, the cheap money era that reshaped our society over the past five decades is coming to an end. That which was sustained by printed money and artificially low interest rates will come to an end with it.

We’ve spent the past week discussing what this means at the macro level. Now let’s talk about what it means for us personally.

When we left off yesterday I suggested that the new economic era will be a boon for self-directed investors. The key here is self-directed.

Mainstream finance has preached a form of collectivist investing for the last forty years or so. By that I mean “Retirement Inc.” encouraged everybody to put their money into funds of various kinds held in 401(k) and Individual Retirement Accounts (IRAs).

At first it was mutual funds. They were all the rage in the 1980s and most of the 90s. Then Retirement Inc. created variations. We got closed end funds… then index funds… and finally exchange-traded funds (ETFs).

The common denominator is that all of these funds are managed by a massive asset management firm. That firm decides exactly what each fund invests in… when it invests… how much it invests… and then when it sells. And of course it collects a nice little fee from each investor regardless of its performance.

What’s more, the asset managers vote each shareholder proxy on behalf of all their investors. That means they could get their own people on corporate boards to direct company policy.

Nobody cared one bit about this for years. Most investors didn’t even know they had voting rights as a shareholder.

But then corporate America went woke.

Suddenly companies were sacrificing productivity in favor of wokeism’s favorite acronyms – ESG and DEI. And the same companies donated millions of dollars to various organizations supporting the woke agenda.

This surprised many of us. Why would these companies willingly harm themselves to promote a quasi-political agenda bent on destruction?

That’s when the light bulb went on.

The asset management firms (think Blackrock/Vanguard) gained massive influence over corporate America by voting everybody’s proxy. Then they helped push the woke agenda.

They had a good run for a few years… but those days are over now. Blackrock CEO Larry Fink even had to swear off using the term “ESG” forever.

Destructive political agendas can only fund themselves in a world of cheap money and artificially low interest rates. And the Great Reorganization has moved us out of that world.

So it stands to reason that collectivist investing has peaked. Inertia will keep it popular for years to come… but the rise of the self-directed investor is upon us.

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